You are offered a chance to buy an asset for $4,500 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $3,450 at the end of Year 4. What rate of return would you earn if you bought this asset?
You are offered a chance to buy an asset for $4,500 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $3,450 at the end of Year 4. What rate of return would you earn if you bought this asset?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You are offered a chance to buy an asset for $4,500 that is expected to produce cash flows of $750 at the end of Year 1,
$1,000 at the end of Year 2, $850 at the end of Year 3, and $3,450 at the end of Year 4. What rate of return would you earn
if you bought this asset?
Your answer should be between 5.08 and 22.48, rounded to 2 decimal places, with no special characters.
Expert Solution
Internal rate of return (IRR):
The internal rate of return (IRR) is a financial metric used to estimate the potential profitability of an investment or project. It is the discount rate at which the net present value (NPV) of the cash flows from the investment or project equals zero.
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